Working with DreamIt Ventures companies and other high tech entrepreneurs on their business models and how they can best monetize their business has me constantly thinking about the alternative sources of revenue.
One thing that I have been thinking about recently due to both our DreamIt companies and my work with WizeHive is that people seem to have different mentalities when it comes to paying for work related items vs paying for entertainment.
As we conceptualize different monetization models for WizeHive, for instance, I take notice of people posting on forums and asking others if they know of a free version of this or that, rather than paying just $20 or $30 for a productivity or work tool. Yet, Zynga and many other online gaming companies get people to pay tons of money to buy virtual goods that have no real economic value, just so they can entertain themselves.
That is one reason why this story about Swoopo caught my attention.
Swoopo lets you come in and bid pennies for very high end items. And if someone out bids you, you can increase your bid…but only in twelve cent increments. So, for instance, with only seconds to go I’m looking at a screen for a new high end laptop that is currently bid at $87 and a Wii that is currently bid for $1.56.
But the beauty of what they have done comes next. Since you can only bid in 12 cent increments, the prices rise very slowly as people bid against each other…which is OK…except every time you bid they charge you .60 cents. And, if the clock is ticking down with just seconds to go…and a new bid comes in…the auction gets extended.
So, while you may end up winning that $1500 TV for only $300, there had to have been 2500 bids to get to that $300, meaning they collected $1500 in bid fees plus the $300 winning bid to sell a $1500 TV! I’ll take that model anytime!
And what is interesting is that once you have spent an amount – say $12 - bidding (20 bids), I think there is a natural inclination to not give up until you have to…so you don’t end up wasting that $12.
In some ways this reminds me of the games that you see at Carnivals or fairs. You pay $3 for 3 balls to knock down the cans, or for 3 darts to puncture the balloons. Meanwhile, if you win, the prize probably cost them .50 cents … so if you win they win and if you lose they win.
I think the beauty of both models is that at the core level it is entertainment. As the article describes I’m sure it is easy to sit there and keep bidding something up for the excitement and thrill of it, even if in the end you wind up with a good deal not a great deal because of the fees.
I am very fascinated to see where this goes and how long before others copy the model and instead of charging .60 cents, charge .30 cents, and instead of .12 cent increments, allow .20 cent increments. But either way this is an incredibly creative revenue generating model and something to keep in mind while you build out your own site.